By Jenny Huang and Ying Wang, Fitch
It’s clear that China is embracing “supply-side reform” to reduce excess industrial capacity and shed unviable assets because its debt-driven growth policies were not working. The shift is essential for battling the middle income trap, but the reform’s effectiveness remains uncertain.
While Chinese leaders have set the tone to let the market play a decisive role, many reform policies have deviated from this principle in light of hefty social and financial costs.
One of the greatest reform challenges is employee settlement in heavy industries plagued by overcapacity including steel, coal and aluminium. More than 2m workers may be affected. Read more
By Eric Lascelles, RBC Global Asset Management
China now commands the world’s attention, having transformed itself into an economic superpower that generates a startling one-third of global economic growth. In a growth-scarce world, the thought of losing even a smidgen of this is unsettling.
For this reason, it is of crucial important to track the constellation of vulnerabilities and unknowns that orbit China. Among these, the country’s housing market is a subject of disproportionate importance. This is due to its centrality, its sheer heft, and also its seeming vulnerability.
Housing acts as something of an economic fulcrum that exerts an outsized influence over China’s banks, heavy industries, builders and households. We figure it is directly or indirectly responsible for a whopping 19 per cent of China’s economic output. Read more
Tourists steer clear of Brazil, Russia, India and Nigeria because of onerous visa requirements, EM Squared reported last week. But even with easy tourist visas in place, these emerging market giants won’t reach their full potential. The real key lies in enhancing the ease of doing business and developing adequate infrastructure.
Visa policies are certainly a real barrier to tourist arrivals. No matter how beautiful or intriguing your country is as a tourist destination, if you make it too complicated for tourists to visit, they will stay away. That problem is not limited to emerging markets. A few years ago, US Travel Association estimated that the US lost the equivalent of 467,000 jobs due to the difficulty for citizens of primarily Brazil, India and China to obtain a visa. Read more
Political systems in the developed world are processing the economic challenges of globalisation and technology in dangerous ways. Although it’s happening with distinct local flavors, the recent phenomena of fringe parties and extreme personalities rising to power (or getting close) in places like Greece, France, Spain and even the US are all part of the same global trend.
It is nothing new to the world that inward-looking populism and confrontational nationalism become a growing force after episodes of economic disruption. While Brexit may be the most important global political event since the fall of the Soviet Union, it’s also a reminder of the popular mood in sophisticated and prosperous places like the UK.
In this context, the question has to be asked: When and how will this political tsunami hit emerging economies? And why haven’t emerging markets (EM) yet experienced the type of neo-populism seen in developed markets (DM) in a serious way? Read more
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By Rodney Dixon
In recent weeks the United Nations has made public eyewitness accounts of foreign aid workers trapped in South Sudan in July as fighting resumed. They reveal how swiftly the country’s unity government pulled apart and returned to war, and how a ten thousand-strong United Nations peacekeeping force failed to prevent this happening. Their testimony indicates both local and intergovernmental shortcomings contributed to the crisis.
Yet today the global community, led by the US and UK, propose a way forward that is primarily international. They call for UN peacekeepers to be increased by one third, and for the establishment of an internationalised criminal tribunal, the “Hybrid Court for South Sudan”. Read more
By Luke Nolan, Student.com
China’s magnetism as a destination for international students is intensifying as Chinese universities climb the global rankings and the number of people who study the Chinese language in their home countries also rises.
You need only look at the figures from last year to understand the extent of the boom. A record-breaking 397,635 international students flocked to China for their studies in 2015, which solidified the country’s position as the third most popular destination for overseas students. The US and UK still dominate the market, but China is chasing hard on their heels. Read more
A manoeuvre orchestrated behind the scenes to water down the August 31 decision by Brazil’s Senate to remove President Dilma Rousseff from office threatens to plunge Brazil back into the crisis of governability that her impeachment was supposed to resolve.
It could prolong the transition period from Rousseff to the new president, Michel Temer, and erode the new leader’s efforts to gain legitimacy. It has exposed latent tensions in the coalition of parties that backs Temer and has put the country’s Supreme Court on the spot. It threatens to undermine Temer’s efforts to get the country out of its deepest and longest recession, as he strives to convince investors that Brazil is a stable democracy governed by the rule of law. Unless it is resolved, it could end in Rousseff being restored to power by November, with the economic and financial meltdown such an outcome would bring with it. Read more
Banks and investors in Southeast Asia have poured billions of dollars over the past five years into hot forest-risk commodity sectors – palm oil, pulp and paper, rubber – helping to ignite a firestorm – literally – of tropical deforestation, land conflicts and human rights abuses.
Last year the haze from Indonesia’s forest fires, set as a cheap way to clear land for further plantation expansion, sparked a regional public health emergency as choking smoke spread across Indonesia, Singapore, Malaysia and Thailand, closing schools, airports and businesses and leaving millions gasping for clean air. Scientists estimate fires in Indonesia emitted 1.5bn metric tonnes of CO2 into the atmosphere, more than Japan’s total annual fossil fuel emissions, while the World Bank said they caused more than $16bn in direct economic losses to the Indonesian economy. No wonder that Indonesia’s forest fires earned the title of the world’s worst environmental disaster of 2015. Read more
Nord Stream 2 is a controversial, €10bn gas pipeline project designed by Gazprom, Russia’s state-controlled gas monopoly, which has a 50 per cent stake, and five European companies, each with a 10 per cent stake. The planned 1,200 kilometre dual pipeline will go under the Baltic Sea from Russian to Germany with enough capacity to transport 55bn cubic meters of gas a year.
Yet there is already enough capacity to transport gas from Russia to Europe and the project’s predecessor, Nord Stream 1, is operating at half its capacity. So why is Gazprom embarking on another project? And why is the EU joining in, when Nord Stream 2 will give no access to a new source of supply or a new supplier, and further increase the excess capacity from Russia to the EU? Read more
The death of Islam Karimov, Uzbekistan’s president, marks the end of one of the world’s most ruthless dictatorships. Karimov reportedly tortured dissidents, incarcerated thousands of political prisoners and maintained airtight control over the Central Asian state’s media and social spaces.
But he was also a master at leveraging the geopolitical agendas of outsiders for his personal benefit. Over decades, his rule exposed the contradictions of western policy and revealed the hard limits of western attempts to promote reforms in Central Asia. Read more
We have reached the second anniversary of the Great Unwinding of policymaker stimulus. Almost inevitably, this now seems likely to be followed by a Great Reckoning, a consequence of the policy mistakes made in response to the 2008 financial crisis.
The Great Unwinding began with China’s decision to move away from the stimulus policies adopted by the previous leadership. Since then, those who expected stimulus to return have been disappointed. The leader of the Populist faction in the Politburo, Premier Li Keqiang, has attempted to manoeuvre in this direction several times, most notably with last year’s failed stock market rally. But in the end, strategy has continued to be set by President Xi Jinping and his Princeling faction, who has consistently focused on the need for structural reform with his New Normal economic programme. Read more
As political jostling continues about the future of Europe, it is important to remember that there are six countries in the Western Balkans that have firmly tied their colours to the European mast.
Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro and Serbia are all actively working towards the ultimate goal of EU membership. All six have a formal contractual arrangement with the EU through Stabilisation and Association Agreements which are all now in force.
The European Bank for Reconstruction and Development (EBRD), an international financial institution that sees cross-border integration as one of its priorities, fully supports this goal. For the countries of the Western Balkans, EU approximation does not just mean reform and investment. It also represents a vision of lasting peace and prosperity – goals that the EU itself has achieved for its member countries. Read more
Russia is suffering, that much is clear. After two years of dramatically lower oil prices and western sanctions the economy is shrinking, the fiscal deficit is growing and the budget gap is becoming increasingly hard to plug.
Russia is fortunate that its professional central bank has played a key role in stabilising the macroeconomic picture. But still one in seven people – that is, 20m — live under the poverty line, effectively eliminating a decade of economic growth. Since July 2014, the rouble has devalued by more than 50 per cent. Inflation continues to hover around 7 per cent. And the Russian economy ministry itself predicts that that real incomes will fall by 4 per cent this year alone. Read more
News that Ikea is rolling out an online shopping platform in China – its first in the Asia-Pacific region – could be a sign that Western retailers are at last reacting to rising costs and shifts in consumer shopping behaviour. But what has taken them so long?
Despite operating online models successfully in the UK and other parts of Northern Europe, it has taken Ikea seven years to get to a similar point in China. With stores in major cities including Shanghai and Beijing, Ikea has followed a similar strategy to many other Western retailers; investing in bricks and mortar outlets in China’s thriving tier 1 and 2 cities.
However, consumer demand has been growing right across China and while rising costs remain an issue, Western retailers urgently need a strategy to develop this market potential. Read more
The Yangon Stock Exchange, reactivated several months ago after the civilian government headed by Nobel laureate Aung San Suu Kyi took office, now has a handful of listings like neighbours Cambodia and Laos, where Japanese ownership and technical assistance were also instrumental in startups.
Myanmar’s political transition has already departed from the other two countries’ model of single-party authoritarian rule despite regular elections, but the economic paths overlap. Investors remain wary of heavy state control and direction as they await elaboration of the majority National League for Democracy’s modernisation and stabilisation platform and implementation steps. Foreign buyers have not yet been permitted, despite urging from bilateral and multilateral donors and Japan’s Daiwa Securities, involved in stock market efforts for two decades. Without bolder vision, early enthusiasm for a new frontier destination will wane, repeating the next-door pattern. Read more
As anyone who reads these pages knows, China’s growth has slowed and its economy is, little by little, rebalancing away from investment and towards consumption. Yet many are also left scratching their heads by news that sales of a wide range of consumer products, from luxury cars to cheap local beer, are so sluggish. If consumption is so strong, why can’t we see it? The answer is simple: people are looking in the wrong places. Both high-end and low-end retail are faring poorly. But look at the middle tier, and the story could scarcely be more different. This is where the consumption boom is unfolding.
Start with the luxury segment. Its best days could well be over. Luxury consumption is slowing, weighed down by a decelerating economy, the ongoing crackdown on corruption and the ‘commodification’ of luxury goods — that is, the idea that Chinese buyers no longer see them as so special or unique. China’s luxury spending contracted for the very first time in 2014. This was just the tipping point. In 2015, Swiss watch exports to Hong Kong, a bellwether of Chinese luxury buying, fell 23 per cent. The sales of Rolls-Royce cars tumbled 54 per cent in China that same year. Read more
After months of speculation, the race to become the next UN Secretary-General has reached the point at which support for the official contenders is being tested where it really counts. Two rounds of straw balloting, in which countries are invited to “encourage” or “discourage” the candidacy of each nominee, have already been held by the Security Council. Another is scheduled for next week. Perhaps surprisingly, at a time when the UN is under pressure to appoint its first woman head and recognise the principle of regional rotation by giving priority to candidates from eastern Europe, the apparent frontrunner is neither a woman nor from eastern Europe. He is Antonio Guterres, the former prime minister of Portugal who completed his second term as UN High Commissioner for Refugees last year. Read more
By Chandran Nair, Global Institute for Tomorrow
At a recent World Economic Forum in Kuala Lumpur, the opening panel was invited to debate one of the leitmotifs of our age – the way in which technology and digital disruption are reshaping destinies in the Southeast Asian region.
Guided by the anchor of a global media channel, the panelists dutifully paid homage to this new religion and its scriptures. There were no questions about what the region’s biggest challenges are, how we got here in the first place, no questioning of the mindless activities that have sprung from the internet, no alternatives that did not involve “the cloud”.
The only worry about the future they discussed was the threat of cybercrime. They did not ask how many passwords are we going to need to protect our bank accounts and our data from the rewarding world of cybercrime, nor how children could be protected from the effects of on-demand pornography, nor who will buy the things made by robots when there are no more jobs to speak of. Read more
When it comes to containing Vladimir Putin’s aggressive posture in Eastern Europe, the conventional wisdom advises strengthening NATO, diversifying Europe’s energy sources, and combating the Kremlin’s propaganda.
There is nothing wrong with any of these recommendations. Yet few things would be as effective in weakening Mr Putin as positive examples of countries in Russia’s immediate neighborhood that have liberated themselves from the shackles of domestic oligarchy and the Kremlin’s influence, and become a success story.
At the moment, only one country has the potential to do that: Ukraine. That is why its economic and political success is not just a matter of a “far-away country” and “people of whom we know nothing,” as Neville Chamberlain used to say about Czechoslovakia. Instead, Ukraine’s success is in the West’s immediate interest. Read more
By Dorthe Fredsgaard Nielsen, GAM
This year began with a rather pessimistic macroeconomic backdrop for emerging market (EM) countries, influenced mainly by deflating of the global commodity bubble, China’s seemingly endless malaise and growing geopolitical risks.
From a micro-economic perspective, the picture was just as bleak. Since the end of the financial crisis, EM corporates had been increasing their debt loads to fund future growth in anticipation of continued strong pricing power and high growth rates. However, both pricing power and profitability were lower than expected, leaving many companies, particularly in the mining and energy sectors, highly leveraged.
This is now stabilising. Balance sheets of EM corporates look much healthier than those of their US counterparts and the strength differential is likely to increase further as US companies continue to add to their debt (figure 1). Read more